Is Buying a Company-Owned Franchise Right for You?

🕒 Estimated Reading Time: ~3 minutes

Normally, we think of franchisors as business idea people who then sell franchising rights to others. The purchasing franchisees run their units as their own business (within the model created by the franchisor). However, some franchisors have company-owned stores that the home office manages and runs.

Franchisors own store units for various reasons.

Sometimes, they use their locations for testing new products, or they may simply be very profitable outlets for the franchisor. In some cases, they are lone rangers in an untapped market. And occasionally, the franchisor will offer the sites for sale to prospective franchisees.

If they are available, a “re-franchised” site can be an excellent investment. Would it be right for you?

<div class="_form_1"></div><script src="https://franchisedirect52345.activehosted.com/f/embed.php?id=1" type="text/javascript" charset="utf-8"></script>

Let’s Look at Franchisor Motivations for a Franchise Sale

There is a reason that a franchisor is offering a company-owned site for sale. And it is important to understand the franchisor’s motivation:

• Geographic focus: A franchisor might be expanding in a different region and not want to manage a perfectly good location that is too far away.
• Profit: A healthy franchise still might provide more income to a franchisor through fees than it does as a company-owned site.
• Liquidity: A franchisor might be working on a project that demands capital investment.
• Growth: Sometimes, a franchisee can get a good deal on a company-owned franchise if they open more units in a region and expand the brand reach.
• Unloading. Occasionally, a franchisor ends up owning a franchise unexpectedly. It could be due to myriad reasons from legal conflicts to lack of fee payment. Sometimes, when a franchisee is selling, the franchisor demands the right of first refusal to purchase the unit and then either run it or resell it depending on its current goals.

Query the franchisor about the units’ prior operation and the reasons for selling. Understanding a franchisor’s motivation will help guide how you approach the purchase decision.

What’s In the Purchase for You—the Franchisee?

There are many good reasons to consider (and even seek) re-franchised locations.

• More confidence. Franchisors can provide financial data from a real operation rather than projecting sales and profitability for a site that does not yet exist. As a buyer, it is easier to feel more confident and sure about future performance before investing when you have data.
• Quicker profit. Purchasing an ongoing operation gets you up and going faster than a new location. Build-out is complete, employees already exist and know the brand, and customers already exist. Ramp-up time decreases while profitability occurs sooner than in a new location.
• Easier financing. Lenders prefer lower-risk loans and prefers performance history to new business projections. The benefit to you is easier financing of your operating reserves.
• Favorable lease arrangements. If the franchisor owns the land, the purchasing franchisee could receive favorable lease terms. And if the land itself is also for sale, it might be an additional investment that offers longer-term payoffs when it sells.
• Deeper history. If a company-owned unit was franchised in the past, prospective buyers have access to its history (previous owners, reasons for ownership change, financial data). This situation might take more investigation, but the history of the location and contact with prior owners provide more information for your decision than you will know with a new unit sale.

Each re-franchised site will have a history to explore. Delving into a company-owned franchise purchase might be suitable and successful because re-franchised units often offer many advantages over new sites. No matter which franchisor you choose, it is worth asking about franchise locations that the franchisor might have for sale.

Anne Daniells is a co-owner of Enterprising Solutions, a professional services firm specializing in corporate communication and financial improvement for businesses where she shares decades of corporate and entrepreneurial experience—including franchise ownership—in her writings on business culture. She has authored hundreds of articles for publications including AllBusiness.com, TweakYourBiz.com, and MSN.com. Reach out via her website for more on where corporate culture, communication, and human architecture collide.